Granularity adjustment for default risk factor model with cohorts

Christian Gourieroux and Joann Jasiak

Journal of Banking & Finance, 2012, vol. 36, issue 5, 1464-1477

Abstract: This paper examines granularity adjustments to parameter estimators in a default risk model with cohorts. The model is an extension of the Vasicek model (Vasicek, 1991) and includes a general factor and cohort specific factors. The granularity adjustments derived in the paper concern the mean and/or the variance of observed default frequencies and are easy to implement in practice. For illustration, the method is applied to the S&P corporate ratings. The Granularity Adjusted (GA) estimators are compared to the unadjusted estimators in terms of their asymptotic properties and in finite sample.

Keywords: Factor model; Granularity adjustment; Systematic risk; Idiosyncratic risk (search for similar items in EconPapers)
JEL-codes: C35 G11 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:36:y:2012:i:5:p:1464-1477

DOI: 10.1016/j.jbankfin.2011.12.013

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